September 12, 1991
TO: INVESTMENT ADVISERS COMMITTEE NO. 44-91
RE: SEC PROPOSAL TO ESTABLISH AN ACTIVITY-BASED LARGE
TRADER REPORTING SYSTEM
__________________________________________________________
The SEC has published for comment proposed Rule 13h-1 under
the Securities Exchange Act, which would establish an activity-
based large trader reporting system. The rule is being proposed
pursuant to the provisions of the Market Reform Act of 1990 to
provide the SEC with the information necessary for reconstructing
trading activity in periods of market stress and for
surveillance, enforcement, and other regulatory purposes. A copy
of the SEC's release is attached.
Set forth below is a brief description of the significant
provisions of proposed Rule 13h-1.
Identification Requirements
The proposed rule would require "large traders" to disclose
their accounts and affiliations by filing proposed Form 13H with
the SEC. The term "large trader" is defined under the proposed
rule as every person who, for its own account or an account for
which it exercises investment discretion, effects transactions in
publicly traded securities in an aggregate amount equal to or in
excess of the identifying activity level. The identifying
activity level is defined under the rule as aggregate
transactions during any 24 hour period that equal or exceed
either 100,000 shares or fair market value of $4,000,000, or any
transactions that constitute program trading (as defined in
paragraph (f)(5) of the proposed rule).
Persons defined as large traders would be required to file
proposed Form 13H, which would elicit minimal descriptive
information such as (1) name, address and telephone number; (2)
type of organization; (3) principal business or occupation; (4)
regulatory status; (5) a description of each trading account
maintained by the large trader; and (6) any affiliations or
associations the large trader may have with other persons. Large
traders would be required to file their initial Form 13H within
10 business days after first effecting transactions that reach
the identifying activity level. Thereafter, large traders would
be required to file Form 13H annually, within45 business days
after the calendar year-end. Upon filing Form 13H, the
identified large trader would receive from the SEC a unique large
trader identification number ("LTID").
A large trader also would be required to disclose to any
broker-dealer, by or through which such large trader directly or
indirectly effects transactions in publicly traded securities,
that it is a large trader, its LTID, all accounts carried by such
broker-dealer, and the LTIDs of all associated large traders that
have discretion or control over the transactions effected for
such accounts.
The disclosures required under the rule that are outlined
above would be afforded confidentiality pursuant to the terms of
Section 13(h)(7) of the Exchange Act.
Broker-Dealer Requirements
Broker-dealers that carry large trader accounts would be
required to maintain records of transactions for all identified
large trader accounts. In addition, broker-dealers would be
required to make large trader transaction reports ("13H Reports")
to the SEC, or an SRO designated by the SEC, with respect to all
transactions of persons for whom such broker-dealer must maintain
records, that equal or exceed the reporting activity level
effected directly or indirectly by or through such broker-dealer.
The reporting activity level is defined under the proposed rule
as all transactions in publicly traded securities that are equal
to or greater than either 1,000 shares or fair market value of
$40,000. Broker-dealers would be required to transmit 13H
Reports before the close of business on the day following receipt
of a request for such information from the SEC or a designated
SRO.
Comment Period
The comment period for proposed Rule 13h-1 expires on
November 26, 1991. Please provide me with any comments you have
on the proposed rule by October 28, 1991.
Amy B.R. Lancellotta
Assistant General Counsel
Attachment